Rushing to Localize the Drone Supply Chain

Amid geopolitical concerns, Taiwan is striving to build up its drone manufacturing capability for both military and commercial applications.

Nearly two decades back, a Taipei-based real estate developer pursued the risky idea of investing in a startup company for the development of drones. The company, Taiwan UAV, notes that it became the first indigenous manufacturer of Unmanned Aerial Vehicles (UAVs).

The visionary entrepreneurs backing this project were losing money on it until recently, when the investment finally achieved profitability. Drawing a lesson from the  war in Ukraine, the Taiwan government increased its acquisition of drones for a wide range of Intelligence, Surveillance, and Reconnaissance (ISR) missions, as well as to create low-cost, effective drone swarms to help counter a potential Chinese attack.

While the development of large drones like the United States’ MQ-9 Reaper remained in the hands of the state-owned  National Chung-Shan Institute of Science and Technology (NCSIST)and Aerospace Industrial Development Corp. (AIDC), Taiwan’s official drone development program was expanded in 2022 to include private companies as prime contractors for the first time.

This “military-commercial UAV project” received R&D subsidies from the Ministry of Economic Affairs and procurement support from the Ministry of National Defense (MND). In December, the MND launched a mass-production initiative, investing NT$7.1 billion (US$221 million) to turn out land-based drones and drones launched from warships.

Although the growing importance of drones for both military and commercial purposes has been recognized for some time, this year saw UAVs elevated even further on Taiwan’s national agenda. In his May inauguration speech, President Lai Ching-te went so far as to pledge to make Taiwan “the Asian hub of unmanned aerial vehicle supply chains for global democracies.”

These developments come against the backdrop of democratic governments across the globe fearing that the PRC military could be able to hack into any drones coming from Chinese suppliers. The overwhelming majority of small, inexpensive drones with the greatest impact on battlefields are made in China. Chinese drone maker DJI alone controls three-quarters of the world’s consumer drone market, according to market research firm Drone Industry Insights.

Dennis Huang, managing director for international strategy and operations at Taiwan UAV, shows the company’s self-developed gas engines. Photo: Jens Kastner

“The Taiwanese government saw how crucial drones are for modern warfare and frets that a Chinese naval blockade could abruptly cut Taiwan from supply of parts and components for drones,” says Dennis Huang, managing director for international strategy and operations at Taiwan UAV. “Our strategic shift from helicopter-type drones to VTOL (Vertical Take-off and Landing) UAVs and the complete elimination of China-made parts from our drones is now paying off.”

VTOLs, which take off and land using helicopter-type rotors, fly like airplanes thanks to a pair of fixed wings. This design allows them to be launched and landed without runways. Additionally, the fixed wings provide enhanced endurance, as flying with wings is much more energy-efficient than using rotors alone.

Taiwan UAV reports that its gasoline-powered VTOLs can achieve a flight time of eight hours. This capability allows them to circle Taiwan several times or reach neighboring countries without needing to refuel. With a maximum speed of 120 km/h and an altitude ceiling of 4,000 meters, along with the capability to withstand the strong winds of the Taiwan Strait, these drones would be particularly difficult for an enemy to shoot down.

The drones’ gimbal system (a pivoted support for rotation around an axis), sourced from Latvia, combines an optical lens with thermal sensors and stabilizers. It features an automatic tracking function that can lock onto an object three kilometers away and follow it for surveillance purposes. The current drone models from the company have a maximum payload of two kilograms – too little to carry significant amounts of explosives. However, plans are underway to upscale these models into so-called “suicide drones” that could target and disable the communication systems of enemy warships, effectively leaving them as sitting ducks on the ocean.

“Taiwan is very strong at electronics and machinery and has complete supply chain clusters in its science parks, meaning it has everything to become a global UAV player,” says Huang.

The engines were initially a chokepoint for Taiwan UAVs. Huang says the company’s plan to replace Chinese-made engines with Australian ones was found to be 20 times more expensive. Eventually, the company successfully developed its own gasoline engines with the help of partners and by recruiting experienced engineers who had previously worked in the Taiwanese motor-scooter industry.

In December, Taiwan UAV became the first manufacturer to pass the MND’s rigorous flight test for long-endurance UAVs and is currently one of only two companies left competing for the 96 ISR-UAVs being sought by Taiwan’s Navy. Huang says Taiwan UAV won the bid, touting the company’s fixed-wing VTOL as superior to the sole remaining competitor’s helicopter-style UAVs.

Non-military tasks

In the drone business, revenue is not limited to defense contracts. Taiwan UAV’s oldest project, which continues to this day, involves marine pollution monitoring for the Ministry of Environment. Taiwan UAV’s portfolio also includes applications like monitoring illegal oil trade in the Taiwan Strait, searching for missing people in difficult terrain, and inspecting infrastructure. While operators typically need only basic training, special certification is required in certain cases depending on the UAV’s weight.

“We hope the government will streamline regulations,” says Huang. “Currently, we always need authorization from several different government agencies, such as the military and the Civil Aeronautics Administration, to conduct flight tests.”

Another Taiwanese UAV-maker that is assuring its customers that it does not use any China-made sensitive components or software is Tainan-based Avilon Intelligence. All products are developed in-house, from flight control to cloud systems. Avilon’s battery-powered multirotor-type drones are currently used exclusively for non-military tasks, including forest monitoring, weather observation, and maintenance of electric power towers.

Avilon’s approach to tower maintenance contrasts sharply with the traditional manual inspections process, which exposes workers to high levels of danger. The company utilizes high-magnification cameras to delicately observe tower structures and power equipment, such as cable wires and insulators, allowing for detailed analysis of potential issues like damage or corrosion. In addition, thermal imaging cameras are used to analyze temperature abnormalities caused by poor contact or damage to equipment.


Amid geopolitical concerns, Taiwan is enhancing its drone manufacturing capabilities for military and commercial use. Recognizing the strategic importance of drones, the government has increased acquisitions for defense purposes and is supporting private companies to foster local innovation. Taiwan aims to become a hub for unmanned aerial vehicle supply chains, reducing reliance on foreign components.
Avilon’s battery-powered multirotor-type drones are currently used exclusively for non-military tasks. Photo: Courtesy of Avilon

“We also see major business potential for remote inspection of solar farms,” says Ming Thanakorn, CEO of Avilon Intelligence. “The conventional method of dispatching licensed inspectors is expensive, and foreign investors can use our UAVs and cloud-based software to frequently check the farms for hotspot damage or power equipment degradation without coming to Taiwan.”

Thanakorn adds that Avilon’s systems enable real-time inspections of large-scale factories and warehouses across various counties and cities, which are challenging to manage centrally using traditional methods, such as manually setting up high scaffolds. Additionally, its systems are used to perform inventory checks and calculate storage space on shelves.

Despite the potential for commercial use, Thanakorn says business opportunities are still mainly coming from the government, as the private sector still tends to accept China-made drones because of their lower price.

“Unfortunately, small and medium-sized companies like us struggle to get access to the government procurement business, with all the big contracts going to large companies that usually function as mere system integrators that outsource sub-contracts to component suppliers,” Thanakorn says. “There should be more change in the making if the government is really serious about phasing out China-made components from the drone supply chain and building local competitiveness.”

Reportedly, some Taiwanese UAV companies bidding for government contracts are merely rebranding products from other businesses, while others go a step further by purchasing Chinese products, remanufacturing them in a third country, and passing them off as foreign models to enter the testing process.

“Some participate in flight tests with counterfeit Chinese UAVs remanufactured abroad,” an insider source told TOPICS on condition of anonymity. “When the government acts as the primary customer providing market demand but sets rules that are inconsistent with national goals, suppliers exploit loopholes for private company interests, undermining the national strategy for UAVs.”

Similar allegations were made on August 16 when a video released by the MND featuring a military member soldering a chip with a logo resembling that of Chinese drone producer Diatone Innovations stirred online debate. The concern centered on the use of a Chinese-manufactured chip in a drone prototype that was supposed to be part of Taiwan’s effort to exclude Chinese components from its military drones.

However, the MND clarified that the drone in the footage was merely a “prototype” used for “proof of concept” and was not associated with Taiwan’s ongoing initiative to develop indigenous military drones. The MND did not confirm whether the chip was indeed Chinese, nor did it elaborate on the prototype’s disassociation from the main drone development program.

Regarding President Lai’s pledge to make Taiwan the Asian hub of UAV supply chains for global democracies, the late entry into the game for the time being means heavy reliance on imports. That became evident in June when the United States approved a new US$360 million arms package for Taiwan that includes roughly 1,000 unmanned aircraft, including U.S.-made Switchblade loitering munitions that hurtle themselves toward a target and explode on impact.

Collin Koh, senior fellow at the Institute of Defence and Strategic Studies in Singapore, cautions that Taiwan will struggle to gain a foothold in overseas markets for complete military drones.

“Taiwan has had a pretty good defense industry for decades, underpinned by a robust science and technology base as testified by its world-class chip industry,” says Koh. “But over these decades, Taiwan has not been an arms exporter despite touting a reasonable range of land, air, and naval systems.”

Will an emerging drone sector change this situation?

“I presume the primary user of Taiwan’s defense products, including drones, is likely to remain the Taiwanese military and enforcement agencies, especially the Coast Guard Administration,” Koh says. “More likely is Taiwan engaging in defense-related R&D collaboration with external parties, out of the public limelight, low profile enough to avoid sparking any possible backlash from a certain neighbor.”